Damage control for Choi

A recent remark about foreign exchange rates by Choi Kyung-hwan, nominee for the double post of deputy prime minister for economy and finance minister, surprised the financial market, and now much of the attention previously given to easing debt-to-income and loan-to-value regulations has moved to the foreign exchange market.

Choi told reporters last week right after his nomination he believes the appreciation of the Korean won would benefit the domestic market by increasing the purchasing power of local consumers.

“Past foreign exchange rate policies seem quite distant from people’s happiness today,” Choi said. “Thanks to the weaker won in the past, Korea could obtain current account surpluses and create jobs. People know about it, so they accepted losses.

“However, as many local companies have started to use overseas outsourcing, such an effect has been limited, but on the consumer side, the recent appreciation of the won might have the effect of increasing their purchasing power.”

This took the market by surprise because the Ministry of Strategy and Finance and incumbent Finance Minister Hyun Oh-seok have been careful about mentioning the sensitive foreign exchange issue.

While the market and many experts read Choi’s message as a possible continuation of the stronger won, the Finance Ministry is trying to quickly damp down the situation by saying that his comment was intended to point out the problem of the weakening won in 2008 and 2009.

Even though the former Lee Myung-bak government artificially encouraged the depreciation of the won, it didn’t help the economy grow as much as expected.

It only caused inflationary pressures to increase, undermining consumers’ purchasing power.

Therefore, there is a new perception among experts that some appreciation of the won is not bad at all, because that can make people feel they have more power to buy.

According to a high-ranking official at the ministry, the nominee meant to say that although the Korean government supported the depreciation of the won during that time to boost exports, the benefits of the depreciated currency were not properly distributed as local companies started going out.

“The nominee’s comment was not about the current situation, and Choi’s view is aligned with that of the ministry,” the official said.

Ministry officials confirmed with Choi that he believes overly rapid appreciation of the won is not desirable.

Many analysts partly agree with the nominee’s comment.

“Too much appreciation of the currency can be a boomerang to the economy,” said Oh Jung-gun, president of Asian Finance Society, “given that about 80 percent of products produced here are being exported still.”

“The nominee’s remark was just theoretical,” said Jung Kyu-chul, a research fellow at Korea Development Institute. “We can’t say appreciation is good at this particular moment, either.”

BY SONG SU-HYUN, kim dong-ho [ssh@joongang.co.kr]